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Music labels wary as Apple tries to bundle subscriptions

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Via Financial Times

Apple’s hopes of creating a super-bundle of media content for one flat monthly fee have run into early opposition, with some record labels nervous about the prospect of offering their music for a lower price. 

The iPhone maker has recently approached the big music companies about bundling together Apple Music and Apple’s upcoming television service, but the two sides have not yet discussed a pricing formula, said people familiar with the negotiations. Talks are at an early stage, they added. 

While some labels are open to the idea, people at one big record company said they had concerns, and that the industry was growing more wary about its relationship with Apple, which strong-armed labels a decade ago into selling individual songs for $0.99 on iTunes.

In recent years, the success of streaming services such as Spotify and Apple Music has helped a recovery in the music business. But executives fear that margins may be hurt if Apple undercuts the $10 monthly price that Spotify, Apple Music and others charge.

Apple TV+, a streaming video service, launches on November 1 and will cost $5 a month, in an effort to undercut its rival, Netflix. 

Analysts have suggested that Apple would eventually create a super-bundle for the 420m people who subscribed to some Apple service in the past year. 

Such a bundle could have several tiers, including apps such as News+, which aggregates magazine and newspaper content for $10 a month, or Arcade, which offers more than 100 games for $5 a month. Last year Apple allowed users to pay for hardware warranties over time with an “AppleCare+” subscription.

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In theory, Apple could offer consumers a bundle of Apple Music and Apple TV+ at a notional $13 a month, without compelling music rights holders to offer a discount. 

While Apple has to license music rights from the record labels, it owns the rights to content on its video streaming service and does not have to share revenues. 

Analysts said the company was more interested in building a huge number of subscribers than in short-term profit. 

Toni Sacconaghi, an analyst at Bernstein, said it was a “genius” move for Apple to give away 12 months of Apple TV+ for free to new buyers of iPhones, iPads and Macs. “The upshot is that by the end of 2020 [or] early 2021, Apple could accumulate millions or tens of millions of paying subscribers,” he wrote. 

Music companies have complained that Steve Jobs strong-armed them into accepting a $0.99 price for digital songs with the advent of the iTunes store back in the 2000s. But in the streaming era Apple has positioned itself as the friendlier partner. 

While licensing negotiations with Spotify have typically been contentious, record executives say talks with Apple have been more harmonious, with the iPhone maker traditionally giving rights holders a higher royalty rate than its Swedish rival. 

Apple declined to comment.

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